A worker shovels dirt inside the massive Bell Works building. The Bell Labs Complex in Holmdel is one of the most iconic office parks in the state. An ambitious redevelopment project is underway after the site sat vacant for years.
(David Gard/For The Star-Ledge)

Merck Headquarters in Readington. The former Bell Labs complex in Holmdel. Hoffman La-Roche’s main campus in Nutley and Clifton. There are countless others.

Once, they represented New Jersey’s boom times; commercial palaces built mostly in the 1980s and 1990s that served as professional homes for new residents in the state’s ever-expanding suburban sprawl.

But as technology leapt forward and the Great Recession knocked New Jersey backward, the state’s large office campuses symbolize a shifting economy.

About a quarter of New Jersey’s office space currently sits vacant, eroding municipal tax bases by tens of millions of dollars. Experts say companies are now gravitating toward more compact offices with collaborative workspaces in downtowns and away from the large, cubicle-heavy spaces so common in the state’s suburbs.

"This is a sea change, and we’re only at the very, very beginning," said Jeffrey Otteau, a real estate analyst and president of the Otteau Valuation Group in East Brunswick. "We’re not in the 80s anymore. This is a broad change, and its impacts are going to be sweeping."

The companies that helped build New Jersey’s commercial real-estate foundation decades ago are no different. In the last decade, many of the state’s largest commercial taxpayers, such as Roche and Merck, have undergone reorganizations and have chosen to depart from the monolithic structures they once had built.

Somerset Development is hoping their ambitious and risky redevelopment bid at the Bell Labs complex in Holmdel will revive the site, which has sat vacant since 2007.David Gard/For The Star-Ledger

It leaves their host communities with real-estate white elephants and huge holes in their budgets.

"I think the worst news in the world you get as a mayor is notice from one of your largest corporations that they’re going to be moving out," said Bill Dressel, director of the New Jersey League of Municipalities. "The implications of those decisions have a direct impact on not only your tax base but the quality of life in your community."

Companies like Merck and Roche have been actively involved in trying to market their properties. But according to James Hughes, dean of the Bloustein School for Planning and Public Policy at Rutgers University, would-be tenants aren’t exactly beating down the doors of towns that have one million square-foot office campuses available.

"The decision makers now have to worry about the Millennials. That old suburban pattern was linked to the fabled baby-boom generation. Now, Millennials, they don’t remember the bad old days of public transit, they don’t remember the urban despair of the 70s."

"And they don’t find plain, vanilla office buildings very attractive."
About 80 percent of all the existing office space in New Jersey was built in the 1980s, Hughes said, and much does not fit the interactive, more compact work environment in walkable, urban communities that companies are seeking.

Merck pharmaceuticals announced in October that they would be closing their Summit and Readington offices and moving to KenilworthEd Murray/The Star-Ledger

"The suburban market is oversupplied and under-demolished," he said.

While few, if any, local suburban politicians are willing to admit openly the paradigm shift represents a difficult struggle, state data show the impact has been significant. Since 2009 alone, more than one-third of New Jersey towns have seen the value of their commercial land decline by more than five percent, and more than 130 by 10 percent or more, according to an analysis by The Star-Ledger.

In Nutley and Clifton, where Hoffman-La Roche is abandoning its 119-acre office campus, local officials faced a budget hole of more than $3.5 million due to lost taxes this year, and will likely see more in 2015. Mount Olive has seen the valuation of the former 440-acre headquarters of BASF drop from $160 million to about $25 million since it was vacated in 2004.

"The assessment started spiraling down slowly," said Jack Marchione, Mount Olive’s Tax Assessor. "We’re lucky we have a lot of ratables that offset that loss."
A concrete redevelopment plan or tenant for either the Roche or the BASF site is not in place.

The recession isn’t all to blame. Data on commercial vacancy rates in New Jersey show the numbers have been rising for more than 10 years, which Otteau says is telling.

"We’re talking five years before the recession even began," he said. "This is sort of a chronic, structural condition that has nothing to do with the recession."
Dressel said mayors have awoken to the issue in recent years. He said the situation isn’t terminal, but the solutions he has seen work are by no means easy.

Thomas S. Michnewicz, VP of Somerset Development, gives a tour of the former Bell Labs facility. His firm is hoping to revive the site, which has been vacant since 2007.David Gard/For the Star-Ledger

"You can’t wait until another 1980s office space tenant comes along … there just isn’t a demand," he said. "You have to be in the land development business. You’ve got to be able to market your community. You’ve got to develop the environment for a potential developer and you’ve got to have an open mind about how you’re going to do that."

Holmdel and Somerset Development are making an ambitious pitch at doing just that.

Holmdel is home to one of the most-iconic office complexes in the state – the massive 2 million square foot, 440-acre former headquarters of Bell Labs, which has sat vacant since 2007. Not long ago, weeds were sprouting in most of the complex’s parking lots; its interior was reminiscent of a post-Apocalyptic Hollywood blockbuster.

Somerset Development, headed by Ralph Zucker, purchased the property in 2013 for $27 million with eyes on transforming it into a mixed-use development replete with a health care center, a hotel, retail and office space. Last week, contractors and construction crews hummed around the complex sweeping and surveying – the audacious start of what Zucker hopes will be a real-estate windfall.

"It would be almost impossible to do this today from nothing," Zucker said in an interview with The Star-Ledger. "But we can build this as we fill it up. It’s all there. There’s a billion dollars worth of stuff that’s already been created. It’s still a huge financial risk, but you couldn’t finance this if you had to build from scratch."

Developers, like Zucker, are placing heavy bets (the Bell Labs project is expected to cost upwards of $100 million) on terms like "mixed-use," and "walkable community." But increasingly, for large and antiquated campuses like Bell Labs, there are fewer and fewer alternatives.

"Towns have to step up and look at this type of property differently," said Peter Cocoziello, president and CEO of Bridgewater-based Advance Realty.

Cocoziello’s firm recently purchased the 110-acre complex formerly owned by Sanofi-Aventis in Bridgewater. The company essentially envisions a town within a town, with housing, retail and office space built to emulate a typical downtown, which Bridgewater currently lacks.

"This is a big place," he said. "What we’re doing is creating a mini kind of city. If you look at other places that are thriving like Morristown, some of those places don’t have 110 acres. We have the ability to create something really unique."

The nearly empty Hoffman-La Roche campus in Nutley. The company is looking to sell the entire property and remaining buildings. Steve Hockstein for the Star-Ledger

The town-center model sought by Zucker and Cocoziello’s projects stems from a broader shift in suburban trends across the state. Older communities with rail access and traditional Main Streets are experiencing a renaissance, while Census data show that the population of New Jersey’s outer ring suburbs, largely developed at the height of suburban sprawl in the state, are aging more quickly and growing at a slower rate.

"People are moving closer to transportation and employment and entertainment, sort of lifestyle locations. Jobs are going in the same direction because that’s where the Millenials want to be," Otteau said. "The outlying suburbs and rural areas are stagnating or declining. There’s less demand for office space. There’s less demand for retail. Those properties lose value, which shifts the tax burden onto homeowners, which causes more of them to want to leave. These are the sweeping changes that are happening, and it’s only just beginning."

Dressel said mayors are taking note.

Over the last three years, the League of Municipalities has hosted a panel at its annual conference on confronting the daunting real estate challenges facing towns across the state. Each year, it has been one of the most highly attended.
The presenters don’t mince words.

"These are people who have spent sleepless nights trying to figure this out in their own communities," he said. "The message to delegates is clear: You’ve got to reinvent yourself."